High Rate Mortgage? Plan to Refinance.

Question: Due to my credit history I just got a high rate mortgage. It is a 2/28 with a two year pre-payment penalty. I would like to be able to refinance in two years when the pre-payment penalty expires. Can you give me any advice?

Answer: Yes. The 2/28 mortgage program was designed for people with credit issues. Our hope is that every customer thinks the way you are thinking. Two years is enough time to build and repair your credit. Here are some thoughts for your consideration...

What is a 2/28 Mortgage?

A 2/28 program has a fixed rate for the first two years. At the end of the two year fixed period it becomes adjustable. Typically it can adjust every six months after the first 24 months. Although there are caps (or limits) on the amount of each adjustment these programs are highly likely to increase significantly at the first adjustment. Ask your mortgage broker for the details of your particular loan.

Plan to Refinance

Given the premium rate that you received on your 2/28 and the almost inevitable rate increase that you face at the end of 24 months you have every incentive to make sure that you are in a favorable position at the end of 24 months to refinance into a better, lower rate mortgage. In our experience, if you make an informed and disciplined effort, you should be able to refinance into a regular Fannie Mae low rate mortgage regardless of your current credit profile.

Rebuilding Your Credit

Having a mortgage on your credit report is a fantastic first step towards building or re-building your credit. Obviously, it is essential that you make all of your payments on time over the next two years. You have had some credit issues in the past, so you know that events may occur that can strain your budget. No one is immune! So think seriously about building a savings account for potential reserves.

Develop Your Savings

Put money into your saving account anytime that you can. Think seriously about making your savings account a priority in your life. The time may come when you need the savings account to insure that payment are made on time. From this point forward don't risk making a late payment.

Maintain Your Budget

You might consider making some sacrifices over the next 24 months to make sure that you continue to remain comfortably within your budget. It is tempting when you have just bought a new home to go shopping! And some shopping may be necessary and appropriate, but not at the expense of your future financial well being. It doesn't hurt to think about the benefit of keeping your credit on track.

Good Credit Equals Big Savings

What will it mean to you in two years when you have rebuilt your credit? Your future mortgage refinance may save you hundreds of dollars each month. But refinancing your mortgage is just part of the picture. Your credit effect the rates on everything from your car loan to your credit cards. Lower rates mean lower monthly bills. Lower monthly bills means more money in your pocket.

Credit Repair Can Help

Your credit report deserves some attention. You should give yourself every advantage when it comes to your financial life. You may very well have serious errors on your credit report that will continue to linger and cost you money unless you do something about it. For credit repair help visit us at www.skybluecredit.com.

Questions? Feel free to contact us. We will be happy to discuss your situation with you.

Contact Jim Kemish at Power Mortgage Corp. for permission to reproduce this article electronically. Copyright © 2007 James W. Kemish. All Content. All Rights Reserved. Power Mortgage Corp. is a Florida Mortgage Broker Business licensed in Florida, Georgia, Massachusetts, and Virginia.